SNL Analyst Sees No Slowing for REITs in Capital Markets

04/25/2013 | By Allen Kenney

Keven Lindemann, director with SNL Real Estate, joined REIT.com for a video interview to discuss REITs’ performance in the first quarter of 2013.

Lindemann noted that REITs’ net asset values (NAVs) indicate that the stocks are trading at a premium of about 14 percent, which, historically, has been on the high side for the industry. REITs’ stock prices relative to funds from operations (FFO) are also high, according to Lindemann.

“The sector has performed fairly well this year. I think there may be some concern that valuations are getting a little bit rich in the sector,” he said. “I think there is some reason for concern, but earnings growth continues to be reasonably strong, and the companies tend to keep clean balance sheets. If the economy continues to recover, I think the outlook is still very positive.”

Lindemann called the six initial public offerings of REITs in the first three months of the year a “very encouraging sign.”

“I certainly see a lot more activity out there,” he said.

Lindemann also offered his thoughts on REITs’ efforts to raise capital. The industry raised a record amount last year, and the first quarter saw that momentum continue to hold up in a variety of areas, according to Lindemann. He pointed out that the amount raised through offerings of common shares in the first quarter actually exceeded the year-earlier period.

“It has been fairly balanced between unsecured debt, preferreds and common shares. The companies continue to have very ready access to the capital markets, which I think is also very encouraging for them,” Lindemann said.

Lindemann noted that companies also continue to take advantage of at-the-market stock offerings, enabling them to raise equity over time.

“As long as companies’ share prices remain high, companies are going to be very interested in issuing equity,” he said. “If there is investor demand for it, they will continue to do it and continue this de-leveraging that we’ve seen. It will all hinge on investor demand. If the institutions continue to want those REIT stocks, I think the companies will continue to raise capital at this pace. Eventually, we’re going to see institutions start asking more about the use of proceeds and making sure that we’re getting a good return on them, but there doesn’t seem to be any sign that capital raising is slowing down at all.”

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